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California market set to bloom again -- Regulators order new renewables capacity and transmission

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California's aggressive renewables portfolio standard (RPS) got the lift it needed last month when the state's regulators decided on rules for bidding and transmission planning that push the 2002 legislation into motion. The RPS, which requires the state's three largest electric utilities to acquire 20% of electricity sales from renewables by 2017, has been stalled for nearly two years while the California Public Utilities Commission (CPUC) worked on the rules.

The California wind industry had originally hoped the CPUC would publish its decisions last fall so that utilities could begin soliciting renewable projects much earlier, but the outcome has been worth the wait, they say. Not only will California's utilities release solicitations this month for new renewables generation, but CPUC has also set in motion a forward looking transmission planning process for the Tehachapi Wind Resource Area in southern California that recognises the area's potential significant contribution to meeting RPS goals. Southern California Edison (SCE), which owns the region's transmission infrastructure, must now plan for the growth ahead of time. The decision ensures that when renewables are built, adequate transmission will be available to get the energy to market.

Pacific Gas & Electric and San Diego Gas & Electric are to release bid solicitations by July 15, while the CPUC is allowing SCE to evaluate the bids from a solicitation it released last year. All three utilities are to acquire renewables each year equal to 1% of sales until they reach the 20% target.

Tehachapi upgrades

The CPUC has also ordered SCE to file a Certificate of Convenience and Necessity within six months that outlines how the utility will build up its transmission system in Tehachapi to meet an anticipated Phase I build-up of wind projects of as much as 1100 MW. It also orders the utility to work with a group co-ordinated by the CPUC to develop a study plan for long term needs in the area. The California Energy Commission has estimated Tehachapi could provide more than 40% of the wind generation needed statewide -- about 4060 MW -- to meet RPS requirements. But transmission constraints currently hamper any chance of that volume coming online. Tehachapi now has 645 MW of installed wind capacity.

"The message in the order is that Tehachapi stands out as a region in California which is going to be integral to the achievement of the legislated renewables target," says Scott Hempling, an attorney representing the California Wind Energy Association (CalWEA). "The Commission has definitely established in these orders that transmission planning shouldn't hold back the achievement of the RPS."

In an interim decision, the CPUC previously found that existing transmission constraints and current methods of designing for transmission upgrades would slow RPS compliance (Windpower Monthly, May 2004). This order removes from SCE the decisions about design and pace of transmission improvements at Tehachapi and transfers that authority to the commission, Hempling notes.

The first phase of SCE's transmission plan will probably include a 500 kV line energised at 230 kV, says Hal Romanowitz of Oak Creek Energy Systems, which owns 34.5 MW of wind capacity at Tehachapi and has over 600 MW under development in the area. At 230 kV, the line could handle about 700 MW of new capacity and that would rise to 1140 MW at 500 kV. Romanowitz, who was instrumental in getting the favourable rulings at the CPUC, says the commission decisions were overdue.

"Tehachapi is the largest single renewable resource area we have in California," he says. "It's a big area, it's key and we've been dying out here without transmission for 18 years. Edison [SCE] had always somehow postponed doing something. But the PUC made a finding of need with this decision and that's pivotal. It pushes the process forward and it diminishes the battle significantly."

The commission also told SCE to request permission from the Federal Energy Regulatory Commission (FERC) to recover the costs it will incur while planning and improving the transmission system. This has been an issue with SCE throughout the rulemaking process at the CPUC. FERC protocols call for building new transmission only for identified generation projects, not for conceptual transmission plans which could lead to unnecessary expense for consumers.

SCE has appealed the latest CPUC ruling in state court, saying that California has no authority to regulate any part of an interconnection agreement, including seeking cost recovery at FERC. In its appeal, SCE says that under FERC policy it is appropriate for the generator to first fund the transmission upgrades and then to be reimbursed through transmission credits once the generator begins commercial operations. To do otherwise would inappropriately shift those costs to the utility and to the ratepayer, the appeal says. The appeal is still under review this month.

Allocating the benefits

Some wind projects will need transmission upgrades and the ranking of least-cost resources will have to include both power and transmission costs, Hempling says. The commission, however, rejected CalWEA's proposal that transmission costs should also be adjusted for the benefits the new line provides. CalWEA argues that expanding the transmission network's capacity does not only benefit wind but also other users of the system. The benefits are difficult to quantify, Hempling concedes.

The CPUC decision will leave it up to the bidders to carefully and clearly describe network benefits in hopes that those benefits will get fair consideration, says CalWEA's Nancy Rader. "That's a far cry from adopting a fair methodology in advance as we advocated, but it's better than handing the utilities total discretion as to whether to consider transmission benefits," says Rader. The issue is particularly important for Tehachapi, she adds, because it will need large transmission upgrades that may also provide system-wide benefits.

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